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The risk of divorce and household saving behavior

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  • González, Libertad
  • Özcan, Berkay

Abstract

We analyze the impact of an increase in the risk of divorce on the saving behaviour of married couples. From a theoretical perspective, the expected sign of the effect is ambiguous. We take advantage of the legalization of divorce in Ireland in 1996 as an exogenous increase in the likelihood of marital dissolution. We analyze the saving behaviour over time of couples who were married before the law was passed. We propose a difference-in-differences approach where we use as comparison groups either married couples in other European countries (not affected by the law change), or Irish families who did not experience a significant increase in the expected risk of divorce (such as very religious families, or single individuals). Our results suggest that the increase in the risk of divorce brought about by the law was followed by an increase in the propensity to save of married couples, consistent with a rise in precautionary savings interpretation. An increase in the risk of marital dissolution of about 40 percent led to a 7 to 13 percent rise in the proportion of married couples reporting positive savings.

Suggested Citation

  • González, Libertad & Özcan, Berkay, 2008. "The risk of divorce and household saving behavior," LSE Research Online Documents on Economics 38463, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:38463
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    References listed on IDEAS

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    1. Betsey Stevenson, 2007. "The Impact of Divorce Laws on Marriage-Specific Capital," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 75-94.
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    Cited by:

    1. Filippo Pericoli & Luigi Ventura, 2012. "Family dissolution and precautionary savings: an empirical analysis," Review of Economics of the Household, Springer, vol. 10(4), pages 573-595, December.
    2. Ortigueira, Salvador & Siassi, Nawid, 2013. "How important is intra-household risk sharing for savings and labor supply?," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 650-666.
    3. Jennifer Roff, 2017. "Cleaning in the Shadow of the Law? Bargaining, Marital Investment, and the Impact of Divorce Law on Husbands' Intrahousehold Work," Journal of Law and Economics, University of Chicago Press, vol. 60(1), pages 115-134.
    4. Bargain, Olivier & González, Libertad & Keane, Claire & Özcan, Berkay, 2012. "Female labor supply and divorce: New evidence from Ireland," European Economic Review, Elsevier, vol. 56(8), pages 1675-1691.
    5. Marie Boltz & Isabelle Chort, 2019. "The Risk of Polygamy and Wives’ Saving Behavior," World Bank Economic Review, World Bank Group, vol. 33(1), pages 209-230.
    6. Alessandra Voena, 2015. "Yours, Mine, and Ours: Do Divorce Laws Affect the Intertemporal Behavior of Married Couples?," American Economic Review, American Economic Association, vol. 105(8), pages 2295-2332, August.
    7. Tanvi Kiran & Shivam Dhawan, 2015. "The Impact of Family Size on Savings and Consumption Expenditure of Industrial Workers: A Cross-Sectional Study," American Journal of Economics and Business Administration, Science Publications, vol. 7(4), pages 177-184, November.
    8. Libertad González Luna & Tarja Viitanen, 2008. "The long term effects of legalizing divorce on children," Economics Working Papers 1122, Department of Economics and Business, Universitat Pompeu Fabra.
    9. Helmuth Cremer & Pierre Pestieau & Kerstin Roeder, 2015. "United but (un)equal: human capital, probability of divorce, and the marriage contract," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(1), pages 195-217, January.
    10. Angelini, Viola & Bertoni, Marco & Stella, Luca & Weiss, Christoph T., 2019. "The ant or the grasshopper? The long-term consequences of Unilateral Divorce Laws on savings of European households," European Economic Review, Elsevier, vol. 119(C), pages 97-113.
    11. World Bank, 2013. "Montenegro Gender Diagnostic," World Bank Other Operational Studies 21827, The World Bank.
    12. Yazeed Abdul Mumin & Abubakari Razak & Paul Bata Domanban, 2013. "Analysis of Household Heads? Decision-To-Save with Financial Institutions in Ghana," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(11), pages 1466-1478, November.
    13. Marcel Fischer & Natalia Khorunzhina, 2019. "Housing Decision With Divorce Risk," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(3), pages 1263-1290, August.
    14. Adriana Helena Cruz León & José Carlos Trejo García & Humberto Ríos Bolívar, 2019. "Desarrollo de un modelo logit para examinar el comportamiento del ahorro en la región centro de México, de acuerdo al perfil de los hogares," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 14(1), pages 57-77, Enero-Mar.
    15. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2009. "Marital Risk, Family Insurance, and Public Policy," SOEPpapers on Multidisciplinary Panel Data Research 226, DIW Berlin, The German Socio-Economic Panel (SOEP).

    More about this item

    Keywords

    divorce; saving; marriage; divorce law;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure

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